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Determination of “Loss” following an “Automatic Early Termination Event” under the ISDA Master Agreement (1992 Multicurrency-Cross-border form).

In Lehman Brothers Finance AG v Klaus Tschira Stiftung GmbH [2019] EWHC 379 (Ch), Snowden J was asked to resolve a series of questions concerning the determination of “Loss” following an “Automatic Early Termination Event” under the ISDA Master Agreement (1992 Multicurrency-Cross-border form).

The main issues related to the date by reference to which the determination of “Loss” should have been performed, and whether the basis for such determination in relation to a collateralised terminated transaction should be by reference to the cost of a collateralised or uncollateralised replacement transaction, in circumstances in which the determining party was unable at the time either to recover its original collateral from a third party custodian or to borrow alternative collateral.

The gulf between the parties was enormous. Tschira had made a determination that a close-out payment was due to them from Lehman of €511.13 million (plus interest and costs). Lehman disputed the validity of that determination, and contended that if the determination had been performed on the correct basis, Lehman would have been due a payment from Tschira.

Snowden J held in favour of Lehman, who received judgment in their favour in the sum of €77.16 million (plus interest and costs).

A copy of the Judgment can be found here.

David Wolfson, QC acted for Lehman, instructed by Watson Farley & Williams LLP.